Thailand resilient as world shaken by Euro shock waves

Meanwhile, business surveys published yesterday showed the euro zone’s economic decline has steepened going into the fourth quarter, as companies across the region endured their toughest month in October since June 2009. 

Market players are sceptical about how European policymakers can restore confidence in the economic union, the financial sector and the euro currency. Though the zone’s economic leaders have pledged unity and willingness to help countries with high sovereign debts, there is still no definite roadmap or commitment of the large sums of money needed to escape the crisis. Many euro-zone countries are suffering negative growth, which affects the demand for global exports. On the other size of the Atlantic, the US government is facing a huge debt burden that the new president will need to urgently address. 

On October 17, the Thai Monetary Policy Committee decided to lower the policy rate by 0.25 per cent, from 3 to 2.75 per cent. The rationale behind the cut was to help keep the domestic demand momentum while inflation risk subsided. The decision showed that we needed to stimulate domestic demand in order to counteract sluggish international demand. According to the report by the BOT, Thai exports have registered negative growth in dollar terms this year up to August. The interest rate in the market reacted promptly to the announcement, with the yield curve sharply flattening. However, liquidity in the market is still tight, with banks competing for deposits. 

In the bigger picture, the Thai economy is expected to grow around 5 per cent this year, which is considered good given the crisis in other countries and severe floods last year. However, whether we have seen the worst of the affects from overseas remains to be seen. Thailand relies heavily on international trade, therefore if economic growth of trading partners slows down, we will inevitably feel the affects. We can only hope that government projects such as the Bt2 trillion for infrastructure, Bt350-billion water management programme, higher minimum wage and rice pledging will help us ride the storm effects from overseas. 

On the US dollar/baht rate, we are seeing inflows from overseas investors to both bond and stocks in order to take advantage of the higher interest rate here. As a result, the baht strengthened from around 31 to 30.50 before falling back slightly to the current level of 30.78 to the dollar. 

I expect the baht/dollar rate to hover between 30 and 31 for the foreseeable future. On the interest rate front, I expect banks will go on competing for deposits to finance lending growth. However, the long-end rate is likely to drop lower due to fund flows from overseas. In that case, the yield curve would flatten. Risk remains over developments in the euro zone but, hopefully, we will not be witness to a total meltdown. 

Views expressed are the writer’s own. 

 

Padej Piroonsit is executive vice president of CIMB Thai Bank.